Why cocoa-growing countries shouldn't make chocolate

It's an obvious economic development strategy: add value to your natural resources. After all, why should coffee growers only get a few cents when a cup of coffee sells for $3? Why should Liberians export their rubber raw to Ohio when they could earn more by making tyres? And why should Ghana and Côte d'Ivoire send most of their cocoa to Europe for processing? Isn't this just the legacy of colonial exploitation and underdevelopment?

Of course, adding value in the source country doesn't pay for multinationals, otherwise they'd be doing it. Now a team at the Center for International Development at Harvard show that it doesn't pay for the country either.

West African countries have lots of rain, cheap labour and an ideal soil for growing tree crops: in other words, a comparative advantage in growing cocoa. Processing cocoa requires entirely different factors: cheap power, semi-skilled labour, a stable environment for big capital projects and cheap transport links. Making chocolate out of cocoa butter is a different business again, calling for more specialized equipment and skills. There is one company making chocolate in Ghana, but it doesn't sell well even here. In fact it's highly unlikely that any country could have comparative advantage in such completely different activities. We shouldn't expect Ghana to specialize in chocolate any more than we would expect Belgian or Swiss chocolatiers to source their cocoa from European greenhouses.

Hausmann, Klinger and Lawrence conclude their paper as follows: "Policies to promote greater downstream processing as an export promotion policy are misguided. Structural transformation favors sectors with similar technological requirements, factor intensities, and other requisite capabilities, not products connected in production chains." (Policy brief here)

Now if only I could figure out what that actually meant in Ghana . . .

The cocoa story: part 1

I have come to Ghana to work on a project to raise the incomes of cocoa growers - already the motor of the rural economy here and in several neighbouring countries.

Ghana is the world's second-largest cocoa producer and three-quarters of a million farmers make a living from it. Unfortunately, their productivity levels are well below what is possible, even before you think about replacing the trees. Better crop management and judicious use of fertilizer can double yields in one or two years. So why hasn't it happened?

The biggest problem seems to be that most farmers can't get credit. Banks are unwilling to lend to farmers, for good reasons: repayment rates are low and there is little chance of seizing the farms to use as collateral, since most farmers don't have formal title to it. Microcredit isn't much help: the interest rates are too high and loan periods too short for agriculture.

West Africa still dominates the world market for cocoa, but Asian producers are making inroads with newer trees and much higher yields. Could cocoa go the way of coffee and oil palm, in which prices are set by cheap, high-volume production in Vietnam and Indonesia? The solution seems to be, at least in Ghana, in a flight to quality. The best soil and climate conditions, apparently. I predict that in 10 or 20 years, chocolate buyers will pay as much attention to questions of origin as wine and coffee buyers do now.

Would a green revolution in Africa be bad for women?

Most people would probably say 'no'. After all, most African women are farmers and so a green revolution should raise their incomes.

But what if improvements in farming technology shift control over food production (and hence income) from women to men?

The much-maligned Food and Agriculture Organization has a focus piece on this, which concludes that the Green Revolution in Asia benefited richer farmers more than poorer farmers and men more than women. Richer farmers, because not everyone could afford high-yielding seeds and fertiliser. Men, because
women lost the income they used to get from threshing and pounding grain when they were replaced by male-operated mills.

This is an important lesson for me, because I've been keen to see rice mills and other low-tech devices spread throughout Africa. I suspect the conclusion is less applicable to Africa, because wage labour is already rare among rural women and rice mills like the one in the picture employ women too. But it's a salutary reminder that we ignore the gender dimension of development at our peril.

Overall, I feel that any kind of agricultural development would be better for women than, say, a rural economy based around mining. My colleagues Emily Stanger and Molly Kinder just won an award for a paper that makes this point in the Liberian context.

Two even better articles on the food situation

The Financial Times has two great articles on why we should have been talking about food ten years ago. (Thanks to Joost Bonsen for alerting me to them).

The first is by Javier Blas: 'The end of abundance.'

The second by Alan Beattie on Africa: 'Seeds of change'.

They note that: "Farmers, agronomists and development experts say that new technology alone, particularly in the short term, will bring no radical transformation. Quicker gains can be made improving markets and transport, which will help expand existing, under-used technologies."

Exactly. Roads and rice mills, then . . .

Rice is back

The price of rice has stopped rising, for now, but the scramble to grow more rice has only just begun.

Agriculture ministers and scientists have been calling for a 'Green Revolution for Africa' for years. The Gates Foundation wants to fund it. Belatedly, the World Bank has agreed. The central focus seems to be on improved seed varieties, bred or modified for African conditions. A blog in the New York Times describes 'The Hunt for Super-Rice', a distributed computing project wherein unused time on personal computers is used to model genetic variations of rice. (This is the same technique as used to search for extraterrestrial intelligence and protein folding combinations).

By contrast, a friend has pointed out a low-tech approach to raising yields in today's edition of the same newspaper. Professor Norman Uthoff at Cornell University has developed a 'System of Rice Intensification' which relies on early and less dense planting. It may seem counterintuitive, but apparently yield can be raised without recourse to the flooded paddy fields or chemical fertiliser familiar from Asia. At a time when the cost of fuel (and hence fertiliser) has risen even faster than the price of the crop, this is welcome news.

As so often, however, the article skirts around the question of implementation. There may be isolated incidents of doubling or tripling yields, but techniques are even more difficult to disseminate than seeds or fertiliser: they need trained extension workers. Even if the System of Rice Intensification raises yields more cheaply or reliably than a 'Green Revolution', it will need a new army of extension agents to make it work. Unless it's so good that it can be spread by word of mouth. Maybe the best agricultural technology is the mobile phone . . .

Madam President wows Harvard

Last week we celebrated our graduation from Harvard in style, with speeches from two female Presidents who have made history.

Harvard's President Drew Faust certainly has the most money at her disposal, but it was Liberia's President Ellen Johnson-Sirleaf who drew the most rousing applause.


Some fellow students found her speech a bit dry (what did they expect?), but I loved it for the telling detail that characterizes Madam President's approach to leadership. I particularly liked this line from her speech: “To be successful you will need to be prepared to go that extra mile to spend time to improve the structures and systems with which you will be called to work." I sometimes feel we put too much emphasis on charismatic leadership and not enough on the slow, difficult task of institution building.

Meanwhile, a new host of interns have begun working in those same institutions in Monrovia. Among them are two fellow Brits, Preya Sharma and Diane Mak. Both, I am happy to report, at the Ministry of Finance, which is probably the most exciting place to be in Liberia right now. Unless the Lone Stars manage to qualify for the next World Cup . . .

The impact of food price rises on trade balances

As world leaders, UN officials and thousands of hangers-on gather in Rome to talk about food, the US Department of Agriculture has released a fascinating map showing how food price increases affect trade balances.

On the face of it, this looks like bad news for developing countries, especially in Africa. A few traditional food exporters, mostly temperate-zone countries like the USA and Argentina, stand to improve their trade position, while densely populated Asia and Africa will see their trade balances move towards deficit.

However, we should beware the mercantilist fallacy that a trade surplus is somehow a sign of virtue: in fact, it could be a sign of excess saving (Japan, after all, ran a trade surplus throughout the recession years of the 1990s). So maybe a slide towards deficit in countries like Nigeria or Peru, where high commodity prices have created trade surpluses and risks of 'Dutch disease', isn't such a bad thing.

The problem with this graph is that it doesn't tell us anything about the terms of trade between countries. Trade in food, like anything else, is determined by relative prices: so the real question is which countries stand to improve their terms of trade as a result of food price changes. After all, if your terms of trade improve, you can afford more imports for the same quantity of exports. You could conceivably increase your import volume while the value of your imports falls. That's a real welfare gain. A trade surplus is nothing of the sort.